Bajaj Housing Finance IPO: 5 reasons why the parental legacy can continue

When companies are making a beeline to woo investors that are more than eager to be wooed in the IPO rush, Bajaj Housing Finance's public offer comes rather reluctantly. The company, in all likeliness, wouldn't have come out with the IPO, if not for the regulatory mandate that required it to. Why? Simply because, it didn't need to. It has more than enough in its buffers. And as a part of one of India's strongest financial services conglomerates, it carries with it an extraordinary advantage—which is the Bajaj pedigree, more specifically—of its parents Bajaj Finance and Bajaj Finserv.

So, here's a company that wasn't really scouting for public market money in the first place, and is backed by two behemoths, who themselves are held in the highest regard on D-Street for the glorious returns they have generated in the past. Bajaj Finance and Bajaj Finserv essentially created many millionaires out of their early investors in the last decade. The past inspires confidence. And similar hopes are getting pinned on their housing finance subsidiary. That Bajaj Housing Finance will continue the legacy. The stock is eyeing a listing pop of 80 per cent in the grey market. Can it, or can it not redo a Bajaj Finance-style success? No one can predict that. But the business is solid and ahead of competitors on many essential parameters. We lay out some of them below:

1) Size/AUM
Bajaj Housing Finance began its mortgage lending operations in FY18 with a small AUM of Rs 3,500 crore, which grew at an exponential 72 per cent per annum to Rs 97,071 crore (as of June 30, 2024), making it the second-largest housing finance company (HFC) behind LIC Housing Finance.

2) Asset quality
The company has managed to charge ahead with rapid growth while maintaining healthy asset quality against the industry. Between FY18-24, it has reported an average gross non-performing assets (GNPAs) of 0.18 per cent compared to the industry average of 2 per cent.

3) Customers and loan book
It primarily caters to highly creditworthy borrowers such as customers with proven track record and having a regular income stream. This strategically helps the company keep its risks of default low. Salaried customers form 87 per cent of its customer mix, the highest in the industry. It also boasts the highest average loan size in the industry at Rs 46 lakh, and a high loan-to-value of 70 per cent, which allowed it to chase after AUM growth.

4) The Bajaj lineage
The company has had access to an already established vast customer base that its parent Bajaj Finance has built over the years. This allows it to leverage an existing network of customers for cross-selling loans.

5) Diversified book
It is the most diversified HFC in the industry with a comprehensive mortgage lending product suite. Its mortgage lending products include home loans, which account for 58 per cent of the book, followed by loans against property and those for developer finance, among others.

For a more comprehensive comparison with its peers, refer to the below table.

Keep in mind

Bajaj Housing Finance's enormous growth is a result of balancing aggressive growth and calculated risk-taking. This is why it has managed to grow too big, too quick. The company has only been in the mortgage lending business for seven years. That is not a long enough period to declare a lender as evergreen. Moreover, whether there is more to their loan quality or not will only unravel with time, since bad loans accompanying exponential loan growth is not uncommon. It is thus unclear if the company can keep up with the enormous growth rates of the yesteryears. And it will be wise to temper your expectations of any monumental growth.

Disclaimer: This is not a stock recommendation. Please do your own research before taking an investment call.

Also read: These 6 SME IPOs made no sense but D-Street loved them anyway